What is Operating Margin?

A measure of profitability that tells the proportion of revenue that will eventually become profit for a company. The formula for calculating operating margin is Operating Income divided by Revenue. As such, Operating Margin is a measurement of what proportion of a company’s Revenue is left over, before taxes and other indirect costs such as interest expense, nonrecurring items (such as accounting adjustments, legal judgments, or one-time transactions), and other income statement items not directly related to a company’s core business operations. Also sometimes referred to as Return on Sales.